Court Opinions: Colorado Court of Appeals Opinions for April 6

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

Madalena v. Zurich Am. Ins. Co


This case presented a novel question in Colorado: whether findings of fact and conclusions of law in a workers’ compensation proceeding concerning issues other than compensability and benefits are binding on an insurance company in the injured worker’s subsequent bad faith breach of an insurance contract claim against that insurer. 

In this case, Aaron Madalena characterized his bad faith claim as one for breach of the covenant of good faith and fair dealing. Madalena asserted workers’ compensation insurer Zurich American Insurance Company and Zurich’s claims administrator Gallagher Bassett Services, Inc. are barred from relitigating some of the findings of fact and conclusions of law entered in Madalena’s favor in his workers’ compensation proceedings. 

Madalena worked as an installer for SunTalk Solar. In October 2015, Madalena told SunTalk he’d injured his back at work. SunTalk reported Madalena’s claim to Gallagher Bassett. Following an investigation into the facts underlying Madalena’s injury, Zurich and Gallagher Bassett initially disputed Madalena had incurred an injury compensable under SunTalk’s workers’ comp insurance policy and denied the claim. Zurich and Gallagher Bassett based their decision on information suggesting that Madalena sustained the injury while working at a second job. 

Following the denial of his claim, Madalena filed an application for a hearing under the Workers’ Compensation Act of Colorado sections 8-40-101 to 8-47-209. Two administrative law judges and an Industrial Claim Appeals Office panel presided over Madalena’s workers’ compensation proceedings. The ALJs and the ICAO panel issued five orders. 

In the first proceeding, the ALJ concluded Madalena was injured “in the course and scope of his employment” and that Zurich and Gallagher Bassett were “liable for medical treatment reasonably necessary to cure or relieve [Madalena] from the effects of the injury,” including the cost of surgery. The ALJ also awarded Madalena temporary total disability benefits. After the ICAO panel affirmed the ALJ’s decision in the first proceeding, Zurich and Gallagher Bassett accepted liability for Madalena’s claim by general admission. 

Zurich and Gallagher Bassett later terminated Madalena’s benefits, and Madalena challenged the termination in a second workers’ comp proceeding. At the conclusion of that proceeding, the second ALJ ruled Madalena was entitled to permanent total disability payments “for the rest of [his] natural life.” By final admission, Zurich and Gallagher Bassett didn’t challenge the ALJ’s determinations in the second proceeding. 

Madalena then sued Zurich and Gallagher Bassett in district court for acting in bad faith by unreasonably denying him workers’ compensation benefits and delaying the payment of benefits to him. He asserted Zurich and Gallagher Bassett contemporaneously knew their position in the workers’ comp proceedings was unreasonable, or recklessly disregarded whether their position was unreasonable, and that their bad faith resulted in damages to Madalena separate and apart from the benefits the ALJs awarded to him. 

The first bad faith case resulted in a mistrial, but the second trial resulted in a verdict for Zurich and Gallagher Bassett. The jury found Zurich and Gallagher Bassett unreasonably denied or delayed providing Madalena with workers’ comp benefits to which he was entitled, either knowingly or in reckless disregard of his right to compensation, and that Madalena had damages. But the jury further found their “denials and/or 6 delays” didn’t cause Madalena’s damages. The court entered judgment in favor of Zurich and Gallagher Bassett based on the verdict. Madalena appealed.

A division of the Colorado Court of Appeals considered whether findings of fact and conclusions of law in workers’ compensation proceedings are binding on an insurance company in the injured worker’s subsequent bad faith litigation against that insurer. 

The division concluded the issues litigated in the bad faith case didn’t include the compensability of Madalena’s injury or the benefits due to him under the act. The division also found the appellees didn’t have a full and fair opportunity to litigate those issues in the prior proceedings. 

The division ruled the administrative determinations didn’t have preclusive effect in the bad faith case. Rejecting Madalena’s additional arguments, the division affirmed the judgment of the district court. 

USIC Locating Servs v. Project Res Grp

This case presented novel issues concerning the intersection between Colorado Rules of Civil Procedure 12(b)(6) and 19, which govern a court’s dismissal of an action for failure to join an indispensable party, and 41(a)(1)(A), which governs a plaintiff’s voluntary dismissal of an action before the filing or service of an answer or motion for summary judgment. 

USIC Locating Services LLC and Project Resources Group Inc. both provide support services to utility companies across the U.S. USIC assists utilities with locating and marking underground utility lines and covers the repair costs for lines that are damaged in an excavation. PRG is a third-party administrator that assists utilities with processing and submitting invoices to USIC for payment. PRG also functions as a debt collector, pursuing payments owed by USIC. 

USIC filed this action in state court, alleging PRG was “systematically … inflating the charges included on the invoices in an effort to deceive USIC into paying higher amounts.” According to USIC, “PRG charged USIC millions of dollars for work that was not done” and that the utilities “never claimed to have been done,” retaining the overages for itself. Based on those allegations, USIC asserted claims for fraudulent misrepresentation, negligent misrepresentation, conversion, unjust enrichment, civil theft and violation of the Colorado Consumer Protection Act. 

PRG initially removed the action to federal court based on diversity jurisdiction. But USIC objected under the forum defendant rule, which precludes a defendant who is a citizen of the forum state from removing an action based on diversity jurisdiction, and the action was remanded to state court. PRG didn’t file an answer to the complaint. Instead, on remand, it moved to dismiss the complaint under Rule 12(b)(5) and (6) for failure to state a claim and failure to join the utilities. The trial court granted the motion in part, finding that the utilities were both necessary and indispensable parties under Rule 19 and giving USIC leave to amend the complaint “in order … to join [them].” 

USIC amended its complaint, dropping its unjust enrichment claim and amending its other claims. However, it didn’t join the utilities. Instead, it alleged that joinder wasn’t necessary; would be destructive of its customer relationships; and would be impractical or impossible “because of the geographical diversity of [its utility customers and services], and in light of the jurisdictional restrictions imposed by the Constitution of the State of Colorado and [its] agreements with the various [c]ustomers.” 

PRG moved to dismiss the amended complaint. The court granted the motion and dismissed the amended complaint without prejudice under Rule 12(b)(6). In so doing, the court reaffirmed its earlier finding that the utilities were necessary and indispensable parties. It also rejected USIC’s argument that the utilities couldn’t feasibly be joined, although it acknowledged that it “ha[d] been unable fully to evaluate the feasibility argument because USIC has not identified the utility companies.” 

USIC then moved for leave to amend its complaint again and for a determination under Rule 19 that the utilities couldn’t feasibly be joined and weren’t indispensable. It provided some evidence on the issues of feasibility and indispensability and requested discovery on those issues. Meanwhile, PRG moved for attorney fees and costs under section 13-17-201. The court entered simultaneous orders resolving both sides’ requests. As to USIC’s requests, the court explained that its previous order “did not invite, but neither did it foreclose, further amendment of the complaint” and ordered 120 days of discovery on “the questions necessary to determine whether joinder of some or all of the [c]ustomers is feasible,” after which USIC could renew or withdraw its motion. The court also denied PRG’s request for fees and costs as “premature,” noting that “[t]his case has not yet been fully resolved nor a final judgment issued.” 

About three weeks later, USIC filed a notice of voluntary dismissal without prejudice under Rule 41(a)(1)(A) and initiated a new action in federal court that is stayed pending resolution of this appeal. In response to USIC’s notice, the trial court issued an order acknowledging the dismissal as “so ordered by [the] court.” 

PRG then filed a renewed motion for attorney fees and costs, which the court granted. The court determined PRG was entitled to recover its attorney fees, concluding that the court had “effectively dismissed” the case under Rule 12(b)(5) and USIC “stubbornly continued to litigate the case without complying in any meaningful way with the Court’s orders” allowing amendment of the complaint to join indispensable parties and discovery to support a third amendment, among other things. 

Finally, without explanation, the court ordered that, “[p]ursuant to C.R.C.P. …58, [USIC’s] conditional dismissal without prejudice is now made absolute and this [action is] dismissed with prejudice.” At the parties’ request, the court stayed a determination of the amount of PRG’s attorney fees pending this appeal. 

A division of the Colorado Court of Appeals addressed issues concerning the intersection between Rule 12(b)(6) and 19 and Rule 41(a)(1)(A). It concluded the plaintiff’s voluntary dismissal of its complaint under Rule 41(a)(1)(A) voided the trial court’s prior orders on necessary and indispensable party issues under Rules 12(b)(6) and 19 and divested the trial court of jurisdiction to enter a later order dismissing the action with prejudice. 

The division vacated the trial court’s judgment dismissing with prejudice the action filed by USIC against PRG, and remanded with instructions to dismiss the action without prejudice. It also dismissed the portion of USIC’s appeal challenging the trial court’s attorney fee order for lack of a final judgment.

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